independent risk monitoring hopes to profit from ucits 3 rules
Co-founder of Fund Research Peter Jeffreys is returning to the market with a fund risk monitoring service.
Independent Risk Monitoring (IRM), which has a staff of five, is looking to profit from more stringent regulations included in the Ucits 3 regulation by providing an outsourcing fund monitoring service to fund management firms.
It will monitor agreed risk parameters, benchmarks and mandates on portfolios and is looking to expand its staff to 11 by the end of the year. The group estimates a single IRM analyst can monitor up to 40 portfolios effectively.
Jeffreys said there is growing regulatory pressure for asset managers to monitor risk and IRM"s advantage is not so much provision of risk data as interpretation of that data.
The group so far has signed up two clients, an independent private bank in Switzerland and a UK-based asset management group, but it would not name either of them. IRM will take data and the risk performance benchmarks from the client. However, it claimed it is not going to be solely dependent on its clients - for instance it intends to take data from fund administrators.
Jeffreys said that should IRM"s monitoring process break down, he felt the liability would lie with IRM rather than the client. He added: "Nothing is foolproof but, short of being caught out by fraud, we feel it is a responsibility that we are happy to take on board."
When the Peter Young affair broke in 1996, his Morgan Grenfell European Growth fund was AAA-rated by Fund Research. The research house"s defence was that it could only make its judgement on the information provided by the fund group.
When asked whether IRM would have been able to spot the problems in Young"s fund, Jeffreys said: "I think it would without any question."
IRM believes there is growing regulatory demand for risk monitoring systems to be put in place by asset managers. In particular, Jeffreys pointed to the arrival of Ucits III, which brings in the mandatory introduction of a dedicated risk management process.
The group argues the cost of monitoring is rising and outsourcing to the likes of IRM could keep this cost down.
IRM"s charging structure depends in part on the number of funds being monitored, the complexity of mandates and the types of underlying instruments used, for instance portfolios with complicated derivatives are harder to monitor than those with listed equities.
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